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A good cost driver does all of the following except

a. Allocates costs fairly.

b. Helps in controlling costs.

c. Can be traditional or activity based.

d. Provides greater benefits than its cost.

e. All of the above are elements of a good costdriver.

In allocating support services to other support servicedepartments, which method is easiest?

a. Direct method

b. Reciprocal method

c. Step-down method

In allocating support services to other support servicedepartments, which method is most accurate?

a. Direct method

b. Reciprocal method

c. Step-down method

Activity based costing is

a. Generally better than traditional costing, but moreexpensive to implement than traditional costing.

b. Is only suitable for large organizations.

c. Generally not as accurate as traditionalcosting.

d. Is generally less expensive to implement than traditionalcosting.

Which of the following is not true?

a. A price setter usually has a large market share,

b. Price setters must watch costs more closely than pricetakers,

c. A health provider in a competitive market is usually aprice taker,

d. A health care provider can be both a price setter and aprice taker,

e. All of the above are true.

Health care providers are

a. Price takers.

b. Price setters.

c. A price setter or price taker, depending on their costingmethod.

d. Either a price setter or price taker, depending on thecompetition.

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Nestor Rutherford
Nestor RutherfordLv2
28 Sep 2019
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Related questions

POCHTAR CORPORATION

The POCHTAR CORPORATION had used a single plant-wide rate to determine its predetermined overhead rate at the beginning of the year, but it has now decided that the most appropriate method is to use two individual department overhead rates, one for the Machining Department and one for the Assembly Department. In computing the predetermined overhead rate(s), whether a single plant wide rate is used or whether two department overhead rates are used, direct labor hours is used as the cost driver for the operating departments.

At the beginning of the year the POCHTAR CORPORATION has prepared individual department overhead budgets, before any allocations, and identified cost drivers for the departments listed below:

DEPARTMENT OVERHEAD BUDGETS

Support Departments:

Building and grounds (cost driver: square feet) $12,000

Personnel (cost driver: employees) 1,200

General plant administration (cost driver: manufacturing hours) 25,000

Operating Departments:

Machining $35,500

Assembly 46,300

BUDGETED AMOUNT OF EACH COST DRIVER

The budgeted amounts for each cost driver per department are given below:

Department Direct labor hrs. Employees Square feet Manuf. hours

Building & Grounds 0 0 0 0

Personnel 0 0 12,000 0

General plant 0 35 8,000 0

Machining 5,000 50 30,000 8,000

Assembly 15,000 100 50,000 17,000

REQUIRED:

What is the predetermined overhead rate using a single plant-wide rate? If necessary, round to the nearest cent.

What are the two predetermined overhead department rates, using the direct method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.

What are the two predetermined overhead department rates, using the step method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.

Based on the following information about two jobs, A and B, determine the total overhead costs for each job by using (1) the single plant-wide rate computed in question 1 above and (2) two predetermined overhead rates using the direct method of allocating support costs to the operating departments computed in question 2 above. Very briefly explain which method makes more sense. Please do not simply say that one method is more accurate than the other.

Direct Labor Hours:

Machining Department Assembly Department

Job A 18 2

Job B 3 17

John Orland, controller of the JuiceCompany, has been concerned over the erosion of the recentfinancial results especially for the standard flavors (A and B)which used to earn a hefty 20 per cent of profit margin.

Recently, Dan Brun, the salesmanager has expanded the lines of products to encompass new flavors(D & C) which were in high demand by customers who were willingto pay 5 to 10 % premium.

Richard Dunn, the manufacturingmanager, was also excited to introduce the new flavors since theywere expected to generate higher margins while using the sametechnology as standard flavors. However, he noticed that theintroduction of new flavors added some technical complexities tothe production process. For instance, unlike flavors A & B,which were produced in huge volume and in long production runs,difficulties started to arise with the new flavors which wereproduced in smaller batches but required more changeovers and moreproduction runs (see Exhibit 3).

The Juice Company produced thedifferent flavors in the same factory. Each flavor had a bill ofmaterials that determines the quantity and cost of direct materialsused for the production of each flavor. Additionally, a routinesheet was used to track the direct labor expenses incurred at eachoperating step for each of the four flavors. All overhead costswere grouped at the plant level and allocated to each flavor on thebasis of direct labor cost. The rate was arbitrarily set at 400 %of direct labor costs (see Exhibit 2).

John was intrigued by the behaviorof their main competitors who were more interested in competing inlow margin flavors (A and B) than in high profit margins (Flavors C&D). Such behavior has led the controller to question theaccuracy of the costing system used by the company and to concludethat the current method of allocation of indirect costs isdistorting their products’ costs thereby causing inappropriatepricing.

To remedy the distortions caused bythe traditional method of costing based on one single cost pool ofindirect costs, John decided to implement activity-based costing(ABC) method which focuses on the activities, how they areperformed, and the resources they consumed and to assign activitiescosts to products based on how much demand each of these productsputs on these activities. After careful analysis of themanufacturing operations of the company and input from engineers aswell as manufacturing and operating managers, the controlleridentified four main activities: process production run, set upequipment, manage products, and run machines.

The demand on these activities bydifferent flavors is illustrated in Exhibit 3.

In order to determine the costsincurred to perform these various activities, he began byidentifying the resources that were being consumed by theseactivities. These resources were then grouped in six categories asshown in Exhibit 1. To gather the required new cost information, heproceeded to interview the department heads in charge of supportstaff wages and benefits and insurance; he found out that theirservices are used by three activities: process production run(35%), set up (35%), and the remaining 30 % consumed to manageproducts.

Next, the controller tackled theinformation system item and determines, after interview with thehead of the information system department, that process productionruns accounts for 25 % of their services while 75 % are used tomanage products.

The results of his investigationsabout the usage of the equipment revealed that it was entirely usedto run machines. Maintenance services were shared equally betweenthe production run activity and run machine activity. Finally,utility was shared equally by the four activities.

Questions

Describe the problem the company is facing

Estimate the costs for the four pens products using ABC

Explain why the ABC costs are different from those provided bythe traditional method based one single cost pool of indirectcosts.

What are the managerial implications for the revised estimates?(i.e.,What would you do if you were the manager of the company andwhy?)

Exhibit 1

Resources Used

Costs of Resources

Support staff wages

$ 40,000.00

Benefits and insurances

15000

Information Systems

12000

Equipment

8000

Maintenance

6000

Utilities

2000

Total

$ 83,000.00

Exhibit 2: Traditional Income Statement

Flavor A

Flavor B

Flavor C

Flavor D

Total

Number of units produced

80000

60000

12000

3000

155000

Sales

$ 82,000.00

$ 55,000.00

$ 16,000.00

$ 4,000.00

$ 157,000.00

Material Costs

$ 18,000.00

$ 9,000.00

$ 5,200.00

$ 1,000.00

$ 33,200.00

Direct Labor Costs

$ 10,900.00

$ 7,800.00

$ 1,600.00

$ 450.00

$ 20,750.00

Indirect Costs (400% of direct labor costs

$ 43,600.00

$ 31,200.00

$ 6,400.00

$ 1,800.00

$ 83,000.00

Total operating income

$ 9,500.00

$ 7,000.00

$ 2,800.00

$ 750.00

Profit margin percentage

12%

13%

18%

19%

Exhibit 3: Activity usage

Flavor A

Flavor B

Flavor C

Flavor D

Total

Production sales in units

80000

60000

12000

3000

155000

Sales in Dollars

$ 82,000.00

$ 55,000.00

$ 16,000.00

$ 4,000.00

$ 157,000.00

Machine hours per unit

0.1

0.1

0.1

0.1

15500

Production runs

60

60

30

10

160

Total setup time (hours)

160

130

180

90

560

Manage Products

1

1

1

1

4

1.A time interest earned ratio of 0.90 to 1 means:

A. The time the firm will default on its interest payment.

B. That net income is less than the interest expense.

C. That the cash flow is less than the net income

D. That the cash floe exceed the net income

E. None of the answer are correct.

2. Statements in which all items are expressed only in relativeterms (percentages on base) are termed;

A. Vertical Statement

B. Horizontal statement

C. Funds Statements

D. Common-sized statements

E. None of the answer are correct

3. A manufacturing firm would begin preparation of its masterbudget by constructing a:

A. Sales budget

B. Product budget

C. Cash Budget

D. Capital Budget

E. Set of pro-forma financial statements.

4. For a company that uses responsibility center accounting,which of the following costs is least likely to appear on aperformance report of an assembly-line supervisor.

A. Direct material used

B. Departmental Supplies

C. Assembly-line labor

D. Repairs and maintenance

E. Assembly-line facilities depreciation

5. which of the folling methods ignores the fact thar someservice department provide service to other service department;

a. Direct Method

B. Indirect method

C. Step down method

D. Reciprocal method

E. Dual cost allocation method

6.A division's return on investment may be improved byincreasing:

A. Cost of goods sold

B. Sales margin and cost of capital

C. Sales revenue and cost of capital

D. Capital turnover or sale margin

E. Capital turnover or cost of capital

7.Which of the following ratios would generally be used toevaluate a firms overall liquidity position

A. Working Capital

B. Current Ratio

C. Acid test ratio

D. Cash ratio

E. Inventory turnover in days.

8.Flexiable budgets reflect a comapny's anticipated costs basedon variations in;

A. Activity levels

B. Inflation rates

C. managers

D. anticipated capital acquistions

E. standards

9.When the quantity of material purchased is not equal to thequantity of material used, most companies base the calculation ofthe material quantity variance on the :

A. quantity of direct material purchased

B. Quantity of direct material spoiled

C. quantity of direct material that should have been used inacheiving actual production

D quantity of direct material actual used.

1

10. Which of the following costs should be ignored choosingamong alternatives?

A. Opportunity costs

B. Sunk costs

C. Out of pocket costs

D. Differential costs

E. None of these.

11. Which of the foll should have the strongest casue and effectrelationship with overhead cost;

A. Cost followers

B. Non value added cost

C. Cost drivers

D. Value added cost

E. Unit of output

12. Equivalent unit calculation are necessary to allocatemanaufacturing cost between:

A. Units completed and ending work in process

B.Beginning work in process and units completed

C. Unit sold and eding work in process

D. Cost of goods manufactured and beginnining work inprocess

E. Cost of goods manufactured and cost of goods sold.

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